US jobs data revisions reinforcing cooling economy, rate cuts

The US Bureau of Labor Statistics reported 206,000 new jobs added in June, topping expectations for 190,000 jobs. Rabobank head of FX strategy Jane Foley joins Catalysts to discuss the print and what it means for the Federal Reserve’s timeline to cut interest rates.

“We saw a significant downward revision to the last two months’ worth of payrolls data, meaning that a month ago, when we were here staring at what we thought was a very, very strong payrolls report that month, well, actually, it wasn’t as strong as we thought. And so, in addition to that downward revision, we also got a tick-up in the unemployment rate,” Foley explains. The US unemployment rate rose from 4.0% to 4.1% month over month in June.

She adds that the labor market is cooling, reinforcing the idea that the Fed may begin cutting interest rates in September. Citi economists are also forecasting three rate cuts in the remainder of 2024 starting in September.

Foley is pricing in two rate cuts by the end of the year, the first in September and the second in December. While the jobs report is a good signal for the Fed, Foley notes that “there are still elements here with respect to inflation and particularly services sector inflation that policymakers are still going to be a little bit concerned about.”

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Mhm.

Hey, welcome back to Catalyst.

I’m joined now by Yahoo Finances.

Nez Foray and nez.

Thanks so much for joining us on the desk here.

Let’s dive in to the currency market for this next conversation.

The US dollar is edging slightly lower after the US added more jobs than expected in June.

For more on this, we have Jane Foley, who’s the head of FX G at Rabo Bank.

Great to have you here with us this morning.

First and foremost, I wanna get your reaction to what we saw come through in that piece of economic data and why we might be seeing this type of reaction.

What the typical kind of nature of, uh, in Correlation to the dollar and the employment report is, Well, first of all, thank you for having me.

But this wasn’t necessarily all about that headline number.

It was about what else came within that report and particularly the revision.

So we saw a significant downward revision to the last, uh, two months worth of payrolls data, meaning that a month ago, when we were here, you know, staring at what we thought was a very, very strong payrolls report that month.

Well, actually, it wasn’t as strong as we thought.

Story continues

And so, in addition to that downward revision, uh, we also got a tick up in the unemployment rate, and I think, put that all together, you know, and and you can say yes.

You know what?

We We got a report which perhaps, uh, went into the same sort of way as the economic data that we had earlier that the week was suggesting, which is a cooling in the US labour market.

Certainly not one that is falling out of bed, but certainly one that is cooling.

And that only served to just reinforce some of that excitement that had built during the course of this week that yes, you know what a Fed interest rate cut in September and then maybe even later in the year as well is certainly, you know, a primary risk, certainly.

And and how many cuts are are you pricing in from your own purview?

Well, here at Bank, it’s it’s two, which I presume isn’t too far away from a market consensus.

So a September interest rate cut and probably another one in December.

But that said, uh, you know, all economists.

In addition to you know, the Fed policy makers are still going to be looking at forthcoming economic data to get further justification for those sorts of forecasts.

I think so far, you know, the data that we had this week, the ISM numbers, uh, that the the labour data we had today that the labour sub index of the ISM data all point to the prospects that, yes, you know that the economy is slowing down sufficiently to bring that interest rate cut.

But, uh, again, you know, you look at that prices paid subsector of the ISM.

It’s still quite sticky.

So you know that there are still elements here with respect to inflation and particularly services sector inflation, that policymakers are still going to be a little bit concerned about.